Review To “The Crises And Arrangements Of Sovereign Debt In Contemporary Spain (1806-2012)”

Review to "The crises and arrangements of sovereign debt in contemporary Spain (1806-2012)"

Francisco Comín Comín, historian of the Spanish economy, economist and professor at the University of Alcalá de Henares, Turolense by birth, was in 1990 National Prize for History for his research work on the “Finance and Economics in contemporary Spain”. In addition, it was award for the investigation of the Ministry of Finance in 2002. Given this context of the author, he shows us a work of the various crises that have emerged in Spain since the beginning of the 19th century to the present and the forms that the different governments have had to repudiate or manage these debts to solve the situations.

In the first half of the nineteenth century, governments established a series of measures so as not to recognize the great debt inherited from the old regime because of the war wars against France and England;In turn, a series of structural economic imbalances were happening at the national and foreign level that led to a series of reforms by the liberal governments, which were more willing to take responsibility for the debt for their ideals and the conservatives that doThey showed reluctant to manage this debt, where inflationary policies prevailed during the twentieth century.

After several attempts to vote the great debt and in various ways, none came to get a percentage by which the public hacienda could take care, because it was a high cost and a totally unsustainable situation for this agent, since it exceeded 30%of public spending.

Juan Bravo Murillo ended the bankruptcy that existed in the country, but decades later there were deficits that supposed various financial movements to try to fix and sanit.

In the end and as an emergency measure, Camacho’s arrangements in 1881 generated a certain stability in the financial plot, guaranteeing the lenders the collection of coupons and foreigners the payment in gold. However, and with a standardized Spanish loan, years later, in 1895 with the beginning of the Cuba War, the level of indebtedness was re -raised, carrying a new indebtedness with it.

In 1898, with an unsustainable debt, Fernández Villaverde began with a new debt reform where he suspended amortizations and elongated payment maturities. In return, the nominal interest rate increased. The success of this reform was mainly due to the use of an orthodox method of amortization.

Already in the twentieth century, the reforms were no longer so deep and tended to convert the sovereign debt, highlighting among others, Calvo Sotelo (1927-1928) and in the 1930s to Chapaprieta.

After the victory of the nationals in the Spanish Civil War, the government of the Franco regime, in 1939, by the hand of José Larraz came the restructuring of the debt originated as a result of the war milestone and that generated an important deficit. The arrangement reduced debt obligations in budgetary expend.

During the regime, the existing debt was "rejected" in a disguised manner and it consisted of the inflationary tax.

The percentage of foreign creditors with national debt was practically non -existent, so the Ministers of the Treasury of Spain could finance this deficit using the issuance of money obtained from the inflationary tax, already mentioned above.

With all this, the creation of the fiduciary monetary system contributed to the existing deficit being more and more easily reduced.

"From the First World War, the indirect monetization of the deficit was used in Spain, through the pignorable debt" carrying with them a false arrangement of the debt with an inflationary policy that hid the real value so as not to revolutionize the owners of the debt.

With all of the above, it is intended to explain a kind of falsified monetary and financial policy so that true monetary values are not really reflected through the inconvertibility of the national currency to the gold standard and the replacement of an external debt to an internal debt to thus, to be able to maintain nominal control and handle the holders falsifying these values.

From a quantitative vision of all debt crises that have existed in Spain in the nineteenth and twentieth century, various indicators must be highlighted.

First, the volume of debt in real terms over time was established in 15.000 million pesetas as an acceptable limit by the Treasury. In 1878, 1902, 1935 and 1973 are the years where the debt reaches its maximum, but never exceeding the limit.

As for the origin of these various crises, it is worth highlighting the importance of the budget unit that until 1958 Spain did not have. Due to this, the budget deficit and public administrations became latent in 1870 and that was dragged until 1902, with slight percentage reductions with respect to GDP with greater accentuation and touching 4% between 1895 and 1898.

Years later, with the conflict of the First World War, the deficit increased to 5% thus causing a new financial crisis that was relieved in the period between 1926-1929 but that, with the financing of the Spanish Spanish Civil War, it led to another new crisis in the postwar period.

It should be noted that one of the indicators that marks the beginnings of the public debt crises coincides with the highest peaks for the provision of floating debt or short -term expiration with respect to the total debt, an appeal used abusive by the Public Treasury inperiods of financial despair.

Another indicator, which without a doubt, confirms the various crises that Spain has suffered from the nineteenth century to the present, is the representative variable that reflects whether the government has financial capacity to assume these debts or not with respect to the total budgetary expenditure,that over time it has remained in a high percentage but that, however, were reduced in the 1920s and 1930s and, during the dictatorship, they remained in very low values.

Already at the time of democracy, between 1981 and 1997, these values rose spectacularly from 1.9% to 47.9% of total budgetary expenditure. This can be explained by the entry of Spain to the European Union and the change in enforceability of its external debt, which represented a high percentage in the country’s trade balance.

In international stock markets, the economic situation of the countries was reflected, and of course, it was no less in the case of Spain. Given all the deficits that occurred between the nineteenth and twentieth century, the price of the sovereign debt in the bag was very low over the years, excluding the periods of the First World War, the postwar period and the crisis of the 29, where theQuotation exceeded 80% of its nominal value.

"Although only a small percentage was marketed, the public debt was the main title marketed in the Spanish bags until 1935, when it meant more than 50% of the value of all stock market operations.".

The general tonic of governments prior to the Spanish transition and subsequent democracy was the repudiation of the sovereign debt that endured over time. However, since 1978 a responsible management of public financing began that it took to become effective for inflationary practices and previous reforms. Since this year, debt emissions began to regulate, the formalization of titles and negotiation with new financial technologies, giving way to a modernization in the monetary and financial policy of Spain. In 1987, with the entrance to the European Economic Community, these processes were reflected with the consistency of a country more immune to inflation with respect to monetary policy and already, in the 90s, with the monetary convergence of Maastricht, much of the autonomy in Spain was suppressed in relation to the fiscal policy and policy of public debt. This was the result of the entrance to the European Monetary System and the Eurosystem.

With the entry of Spain in the Europe.

Due to the 2007 international financial crisis and its outbreak in Greece in 2010 made investors that Europe was divided into two (developed and in developing roads) and that Spain was going to be bankrupt due to the crisis, without thiswould have technically entered that crisis. All this generated an increase in risk premium, a higher credit interest rate and difficulties in financing short -term debt renewal.

With all this, Germany and France did not intervene correctly and the markets continued betting on the bankruptcy of Spain.

The problem arose when two positions were confronted that made Spain enter recession, without previously having deficits of deficits.

The first of them was the story that dragged to face the debt crises that was emerging and the lack of monetary sovereignty to act. On the other hand, the second problem, and the most to take into account, was the great foreign debt that had when the crisis exploded. Spain almost reached 90% of GDP at the level of indebtedness, and with this data, the fragility of the financial system, its low competitiveness and the high unemployment rate, theorized the risk of investing in Spain.

With an insufficient loan required at its expiration, and with a restrictive monetary policy from the European Central Bank, Spain cost more than expected to leave the recession in which it was.

As a synthesis of this work, Francisco Comín shows us in a particular way and to highlight, with an abstrusal slang, to the financial complications to which Spain has been exposed throughout the nineteenth, twenty -xx and early twenty -first one, with some XXI, with somerevealing data that shows the inefficiency of the governments of the nineteenth and twentieth century, and the problem that currently drags before such a problem in the face of the uncertainty of how the Spanish government on duty can solve this type of difficulty.

In addition, it is curious to appreciate, as throughout history, a cyclical economy is reflected in which the facts are repeated and the ways of solving it causes a country to advance or stagnate.

It is evident that the form and structure of this work shows a seriousness in the writer’s investigation, where he reflects that he has done so for many years, so a target audience of this subject can be very useful for other economic historians and researchers.

"Those who suffer in a crisis are the ones who did not play any role in creating it" (Joseph Stiglitz). With this phrase, the famous American economist explains what in different ways and not in such a resounding way what happened in Spain with the last crisis where it was very affected indirectly by the different reasons explained above.

Finally, in the famous work of John Maynard Keynes, persuasion essays, said "inflation is unfair, inconvenient deflation". This concept is to reconsider what happened in the last Spanish recession and if the loss of autonomy in monetary policy is really beneficial for the country.